Cost-cutting and restructuring are bedding in at US-based contract research organisation (CRO) Kendle, which lifted its net income by 37% in what chief executive officer Candace Kendle described as a “particularly challenging” first quarter.

That was reflected in operating income, which plunged 47.6% to US$4.27 million in the quarter ended 31 March 2010. Net service revenues were down by 16.5% year on year, to US$90.3 million.

At the same time, though, new business awards are picking up and the cancellation rate is looking healthier, leaving Kendle “encouraged” about the latter half of 2010 and its longer-term prospects.

Net income for the first quarter was US$1.21 million, 36.7% higher than in the same period last year and helped by a much lower effective tax rate (56.4% versus 88.4% in Q1 2009). Earnings per diluted share were US$0.08 compared with US$0.06 one year previously.

According to Kendle, the fall in operating income was largely due to lower net service revenues, partly offset by the cost reduction measures implemented during 2009.

New business awards for the latest quarter came to US$89.0 million. They “started slowly but accelerated as the quarter progressed”, Kendle noted, while “early evidence is that this acceleration is continuing into the second quarter”. For the month of April, alone, the company registered new business awards of more than US$50 million.

Contract cancellations and related adjustments during the first quarter amounted to US$52.8 million, “substantially all” of which could be attributed to development pipeline reprioritisation, lack of drug efficacy and sponsor funding issues, Kendle said.

“We have seen the cancellation rate moderate in the latter part of the first quarter and this trend, too, has continued into the second quarter,” it stated, adding that in April cancellations came to less than US$1 million. New business authorisations or backlog totalled US$768.0 million as of 31 March 2010.

"Our customers would appear to be at the end of their pipeline realignments and merger-related disruptions and are settling into selection of CRO partners,” Candace Kendle commented. “Cost efficiency remains a top priority for our customers, and outsourcing is a key strategy in achieving it.”